Thursday, October 11, 2012

China Daily Chat with Jagdish Bhagwati the Economist.

Trade's champion

Updated: 2012-10-05 12:00

By Chen Weihua (China Daily)

Jagdish
Bhagwati, shown here in an interview in New York, has become known as
much for his opinion essays in the media as he is for academic research.
Chen Weihua / China Daily

A renowned economist, who backs Beijing's policy stance and
says outsourcing fears are overblown, talks with Chen Weihua of China
Daily in New York.
Indian-American economist Jagdish Bhagwati would be the polar
opposite of China if the country hadn't embraced market reforms and
globalization over the past three decades.

Indeed, the stalwart advocate of free trade has been defending China
in the face of campaign-trail sniping by President Barack Obama and Mitt
Romney over the alleged Chinese role in the outsourcing of US jobs and
Beijing's currency policy.
"The United States under the Obama administration has clearly shown
that it's open to protectionism," Bhagwati told China Daily. "When they
talk about outsourcing, they mean the US should use local production and
not import things from outside. This is in violation of the spirit of
WTO."
The 78-year-old economist spoke during an interview in a studio at
the Council on Foreign Relations in New York, where he's a senior fellow
in international economics.
Bhagwati believes this policy stance developed mainly due to pressure
on Obama from Democrats in Congress who rely on labor unions' support.
But to Bhagwati, who himself is a registered Democrat, the blame for
this falls on Bill Clinton. As president, Clinton paradoxically
vanquished unions in enacting the North America Free Trade Agreement in
1993 but failed to convince them that trade is good for the United
States, the economist said.
"It's impossible to cut down on outsourcing, which means importing
things from China, India, Brazil, etc, simply because that is not what
in today's world economy," he said. "There are so many imported
components. For example, if you don't bring them in, you are not going
to be competitive."
He pointed to a 2010 debate for a US Senate seat in California
between incumbent Barbara Boxer and former Hewlett-Packard Co CEO Carly
Fiorina. Bhagwati suggested that when accused by Boxer, a Democrat, of
having outsourced 30,000 HP jobs to China and India, Republican Fiorina
should have defended the move as necessary for the computer company to
stay competitive or risk losing even more positions altogether.
Fiorina lost that election to Boxer.
As a Democrat, Bhagwati wasn't positioned to advise either Fiorina or
Romney, but as a free-trade believer he thinks Republicans generally
should defend their stands.
He would have free-trade candidates make the following argument to
their campaign opponents: "Your analysis is wrong. You're going to hurt
the system. If we stop importing from the world, other people, including
the Chinese, will say we won't import from you. This is tit-for-tat.
Both parties go down, instead of going up."
Bhagwati is disappointed that Obama has yet to make such an argument.
"He is beginning to sound like Lou Dobbs," the professor said,
referring to the Fox Business Network host known for his on-air rants
against US companies that outsourced jobs, sometimes calling them
"traitors".
On the other side, Bhagwati - author or editor of some 50 books -
continues to write opinion essays extolling the benefits of trade. His
witty, provocative columns appear in newspapers and magazines around the
world.
In "The Outsourcing Bogeyman", a 2004 article in Foreign Affairs, he
rebutted claims that outsourcing will be like a tsunami, flow only from
rich countries to poor ones and only cost jobs, not create them.

Indian
Prime Minister Manmohan Singh (left) and professor Jagdish Bhagwati,
(as they walk to a meeting), studied economics together at Britain's
Cambridge University in the 1950s. Provided to China Daily

"It is simply not possible to outsource everything," wrote Bhagwati, a
Columbia University professor since 1980 who previously taught at the
Massachusetts Institute of Technology for 12 years after earning a PhD
there. He cited the example of Texas-based computer maker Dell Inc
curtailing use of call centers to fix customers' PC problems after
Bhagwati told company founder Michael Dell of his experience not being
able to understand technical instructions over the phone.
"There has been substantial growth in 'reverse outsourcing'. Indian
firms like Infosys and Wipro, giants in the information-technology
sector, are now looking for cutting-edge services and high-grade talent
as they compete for local markets such as the US," Bhagwati's Foreign
Affairs essay noted.
In an August 2010 commentary, he lashed out at Obama and other
politicians for the "new fetish for manufacturing" and argued that "Made
in America" isn't the way out of economic doldrums for the US.
"Increasing demand for those non-tradable services that need suppliers
and users to be close together - as, for example, with nursing and
retirement homes - should have just the same effect on employment," he
argued.
"By promoting manufacturing of all kinds (as can be expected as the
sector's lobbies get down to work) at the expense of more innovative and
dynamic service sectors, precisely when America is faltering in its
recovery from the crisis, this unhelpful fascination promises to inflict
gratuitous damage on an economy that can ill afford new wounds,"
Bhagwati wrote.
While such articles won't please Obama or other Democrats, the man
who once said "professors should be a public nuisance" isn't about to
rein in criticism on the subject that has defined his academic career.
In an FT piece from February headlined "Shame on you, Mr Obama, for
pandering on trade", Bhagwati said the president had "infamously killed
the multilateral Doha Round" of global trade negotiations in December
2011 "by instructing his representative at the [World Trade
Organization] to be a 'rejectionist' negotiator".
With signatures from 50 of the world's most influential experts on
trade, Bhagwati had written an open letter to Obama in August 2011,
urging him to help bring long-delayed conclusion to the WTO's Doha Round
after 10 years.
Obama "compounded the folly by instead floating the Trans-Pacific
Partnership trade initiative that is conceived in a spirit of
confronting China rather than promoting trade," he wrote.
Strategic concern
In a January blog post for the National Interest, a foreign-policy
journal, Bhagwati said the Nafta-like regional trade pact "is being sold
in the US to a compliant media and unsuspecting public as evidence of
American leadership on trade. But the opposite is true." He added, "The
TPP is a testament to the ability of US industrial lobbies, Congress and
presidents to obfuscate public policy."
"Countries are, in principle, free to join the TPP. But a closer look
reveals that China is not a part of this agenda. The TPP is also a
political response to China's new aggressiveness, built therefore in a
spirit of confrontation and containment, not of cooperation.
"It is no surprise that the TPP template includes numerous agendas
unrelated to trade, such as labor standards and restraints on the use of
capital-account control, many of which preclude China's accession,"
according to the blog entry. Bhagwati added that the putatively
"high-quality" 21st-century trade agreement is actually "a rip-off by
several domestic lobbies".
"China, India and Russia will never agree to those conditions; [the
TPP] is dividing Asia," Bhagwati told China Daily. He has expressed his
views publicly in Australia and said he will talk about the pact in
Japan when he visits that country soon.
Australia is among nine countries negotiating terms of the TPP (along
with Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and
the US), while Japan is considering participation. The next round of
negotiations is set for December in Auckland, New Zealand.
In Bhagwati's view, the Obama administration has been preoccupied
with strategic concerns over China. "They pretend that they are not
trying to contain China," he said. "They are; it's obvious."
He lamented that Paul Krugman, the Nobel Prize-winning Princeton
economist and New York Times columnist who was once Bhagwati's research
assistant at MIT, has joined the ranks of China skeptics. Bhagwati has
long endorsed the Chinese government's currency policy, arguing that US
political leaders are misguided in focusing on the yuan-dollar exchange
rate.
"The exchange rate is like the hand on my watch, the one that's not
very important," he said. "What's important is the mechanism below that.
If you look at China, it's already shifting. It does not want to hold
all these [US] Treasury bills and get nothing from it."
China is moving toward increased spending on infrastructure, as his
native India has begun to do. According to Bhagwati, China-bashing won't
gain traction among scholars.
Beijing has been shrewd in learning to maneuver within the WTO, such
as in cases of dumping allegations against China, said Bhagwati, who has
advised the Geneva-based body as well as the Indian government and the
United Nations.
"We all know that part of the system is terrible; they go back
several decades. You have to work within the system, ask for the reform,
build a coalition to counterweigh that," he said, adding that one of
his former Columbia law students from China now serves on a WTO panel.
"If there is a lawsuit brought to the Chinese by the Americans, it is
a good thing because it then goes to an impartial dispute-settlement
panel, which the Americans cannot control. China can play a big role and
it doesn't lose its cool."
Asked why Washington still encounters economic problems with so many
talented economists in its midst, Bhagwati said that when you have six
economists, you have six conclusions and six prescriptions.
"If (John Maynard) Keynes were one of the six, there would be seven
opinions, because Keynes would have two," he said with a laugh.
The professor said that cynics sometimes attribute success in
Southeast Asia to its paucity of economists, leaving rulers to make
(better) decisions based on common sense. Admitting the bromide is
anti-economist in nature, he finds some truth in it.
"Once you have a discipline, it's not easy to break out of it - it affects the way you think," Bhagwati said.
"That's why sometimes I can say things about microeconomics: It's not
my field. You are not handicapped by the ways of looking at things you
received. You bring a fresh approach."
Bhagwati's scholarly works and mainstream essays have touched on
issues beyond trade and economics, including the environment,
immigration and human rights.
He admired the late Chinese leader Deng Xiaoping, who launched
reforms and China's opening-up in 1978. It was difficult to convince
people in protectionist India of the validity of economic success
stories in South Korea and Taiwan, which Indians tended to dismiss as
being too small to matter.
"So when China came, it's bigger. Its outward integration can
actually benefit. It doesn't mean everything should be dismantled. But
you should not be afraid of international trade and foreign investment.
"That was a big breakthrough. That was very important to us," said
Bhagwati, the 2000 winner of the Padma Vibhushan, India's second-highest
civilian award. His wife, Padma Desai, a development economist, Russia
specialist and also a professor at Columbia, won the prestigious Padma
Bhushan award in 2009.
The couple were credited for their 1968 book, India Planning for
Industrialization. Though intended as a blueprint for modernizing the
Indian economy, its policy recommendations went largely unheeded until
India undertook free-market reforms in the early 1990s.
Having studied with India's current prime minister, Manmohan Singh,
at Cambridge University in the mid-1950s, Bhagwati said he isn't
surprised that his old classmate has initiated major reforms, though
they languished due to political pressures.
"We shared the same view," he explained. "I knew what he thought. We
had to get rid of the framework of so many interventions. There was no
international trade and no foreign investment" in the economy then.
Bhagwati said that even during their university days in Britain, he
knew Singh, who also is a trained economist, "was going to go very far",
but "I had no idea that he would become prime minister."
He told a story of how Singh, who was raised by his grandmother in
humble surroundings, would get up at 4 am to take a cold shower when
everyone else in their student house was shivering.
"Anyone who can survive the English winter and take a cold shower is bound to go very far," Bhagwati said.
Esteemed scholar
Besides being an adviser to Singh's government, Bhagwati in the 1960s worked for officialdom in New Delhi.
"For a young economist, those years also provided a heady interaction
with the giants of the newly independent India - Prime Ministers
[Jawaharlal] Nehru and Indira Gandhi, and polymath adviser to Nehru, PC
Mahalanobis, who was also the architect of India's industrialization
strategy," Indian economist Arvind Subramanian wrote in a 2005 profile
of Bhagwati for the journal Finance and Development.
While Bhagwati has been honored with six Festschriften, a book
honoring a respected person, and other awards, he hasn't received the
Nobel Prize for Economics, which some say he deserves for his
breakthrough work on trade and welfare.
Nobel laureate Krugman - who called himself an "SOB", or student of
Bhagwati - praised his one-time mentor at a 2005 celebration.
"I think the thing about Jagdish is that he could have been someone
who spent many years - the original work was so early that Jagdish could
have spent 40 years defending his great work, work he had done 40 years
ago. Instead he has kept on moving on, made the world a better place -
made international economics a vastly better place that it would be.
"I shudder to think: It could have been the field that people told me
not to get into, were it not for Jagdish. I really think that he made
all the difference in the world," Krugman said.
At that same dinner for Bhagwati, former US Treasury secretary Larry
Summers said: "Our world economic system has a long, long way to go
toward being more just, more fair and more inclusive. But it is today
fairer, juster and more inclusive than it would be without Jagdish
Bhagwati's strenuous efforts."
But Bhagwati's reaction to such felicities is met with his characteristically wry humor.
"I joke that Mahatma Gandhi deserved [a Nobel prize] but did not get
it either, so perhaps I will then be the second deserving Gujarati not
to get it," he told India's Outlook magazine in 2004.
(China Daily 10/05/2012 page1

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